John Ninfo: Why would any consumer have credit card debt?

Monday

Oct 2, 2017 at 2:55 AMOct 2, 2017 at 2:55 AM

Before we finish up with my non-financial retirement advice, I want to revisit an issue that we have discussed in the past in this column. It keeps coming up, especially now that I have started giving my CARE financial literacy presentations in the schools.

If you are a regular reader, you know that I always talk about avoiding debt as much as possible, in large part because, as a consumer and not a business, and no matter how much money you make, every dollar you pay in interest is lost to you forever. You can’t pass it on to someone else, like businesses do to their customers in the cost of the product or the service they are selling.

Then, if you do need to incur debt, for things like a mortgage or a car loan, the idea is to reduce the amount of interest you will pay. So, a 15-year mortgage, rather than a 30-year mortgage; or a three- or foyr-year car loan, rather than a seven-year car loan, will mean that you will pay less in interest, but, yes, your monthly payments will be higher. When you do the math, and you see how much interest you will save, it should make a lot of sense — and, yes, I am talking about dollars and CENTS.

So the question comes up, are there good reasons for a consumer to carry a credit card balance? I am not talking about a profitable small business that is forced to fund some of its operations, capital improvements or expansions with credit cards. They are MAKING A PROFIT. I am talking about a consumer. However, that for me is the possible answer. If you can make a guaranteed profit with the money you borrow on a credit card, I guess it could make some sense. So, if you have good credit, and could get a 0 percent credit card with a six-month or longer introductory offer, you could, for example, take the money and put it in a savings account. Withdraw any monthly payments to make them, and pay the balance before the end of the introductory period, and make money on the interest you receive in the savings account. I suppose that someone might say that you could do the same thing, make a profit, with some more risky investments than a savings account, but I certainly would not endorse that.

I can think of some similar examples of 0 percent financing for a car or furniture, which can require you to open a credit card to finance it. If you could otherwise pay cash for the item, during the 0 percent financing period, you can once again make money by having that money remain in your savings account.

Bottom line, if you can make a guaranteed profit with money borrowed on a credit card, it might make sense, and that, for some, may include taking out a lower-rate new card to pay off the balance on a higher rate card, as long as you don’t charge any more on either of those cards.

On the other hand, I don’t think most people would honestly buy this explanation for carrying credit card debt, paying interest, and, therefore, paying more for everything. “By carrying credit card debt, even though I will pay more for everything, because of the interest, I can have and do things I couldn’t otherwise have or do, by saving and working harder, and who cares if I pay more for it in the end.” If you feel that way, you may not want to tell that to others.

One last thing. Some people invest their cash back or sell their rewards in order to make money, but that is not about carrying a credit card balance. Also, remember, some people charge more because of rewards.

Let’s finish up with more personal, non-financial retirement advice, starting with number four.

Fourth, I am one of those people who believe that “all good things come to an end.” They may not, but I believe that it helps to be prepared for that. That way you will remain flexible, and always prepared to move in new directions. That realization, combined with that positive attitude that we talked about, will help you find new interests when those grandchildren or friends you were planning on, or were, spending a lot of time with, move far away; or when that organization that you were working for, or planning to, no longer exists, or moves in a new direction.

Fifth, if you are not one now, commit to your becoming more of a “lifetime learner,” and to building up your “Curiosity IQ.” Look for new things to learn about — for example, Native American history. There is so much out there to read that it will keep you busy for a long time. Then you can visit places like Ganondagan around the country. It can become one of many “projects.”

Sixth, Admiral William H. McRaven, the Commander of the Seals, said, “make your bed every morning.” Translated — at least to some extent, see life as a series of reinforcing accomplishments every day, both big and small. It will keep you going. I am one of those individuals who every day and week makes lists of things to do, and then checks things off. I also review the things that I feel that I accomplished that day at bed time. Remember, in retirement, you will need a “sense of purpose.” This technique is helpful, but it is not the entire answer. Start looking before retirement for that sense of purpose, and keep looking and working at it in retirement. You will find it, and it will be unique to you.

Next time — yes, Equifax.

John Ninfo is a retired bankruptcy judge and the founder of the National CARE Financial Literacy Program. Find his previous weekly columns at http://www.mpnnow.com/search?text=Ninfo or at http://www.monroecopost.com/search?text=Ninfo

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